Secured Assets

[Boscoe]

Ok, just to confirm and as info for new members, would someone please confirm the following re: how secured assets (real estate, autos) are handled in bk?

If value of asset exceeds outstanding loans, the debtor surrenders the asset and walks away. Does not matter if there is any issues with the loan (fraud, etc.), as the debt is covered by the current market value of the asset and the disposition of that asset now becomes the creditor's issue. There is no deficiency judgement possible in this situation.

If the loan value exceeds the value of the asset, the secured portion (the asset value) is handled just like above, but the remaining portion becomes unsecured and is handled through the bk. Dischargeable unless there is fraud and the creditor timely objects to the discharge.

Please confirm this understanding is correct. Thanks.

[HHM]

In the positive equity case (i.e. Asset value greater than loan value) and you "choose" to surrender the asset...first, you want to determine if the positive equity can be exempted, if so, you still want to claim the exemption, but otherwise, yes, the asset eventually gets turned over to the creditor for disposition and if there really is positive equity and you can exempt it, then you will get a check from the creditor.

In the negative equity case (i.e. Asset Value is less than loan value) and you "choose" to surrender the vehicle...the same things happens as above (except there is no need to claim an exemption, as there is no equity) and any remaining balance owed to the creditor is discharged in the BK.

[Boscoe]

Thanks.

But if this is a second home and equity exemptions do not apply, AND there is a possibility of a creditor prevailing in an objection, how does the positive situation work? Obviously, the negative situation, the creditor could prevail and the amounts survive the bk. But what about the positive case?

[HHM]

If there is positive equity in an asset and no way to exempt it...then your BK Trustee will get the balance and use it to distribute to your creditors. In this specific case, if there is enough equity, the Bankruptcy Trustee will probably grab the asset in your BK and the trustee will sell it, pay the secured creditor, and then use the leftover to distribute to your creditors.

Note, secured creditors typically do not object, there usually is no need to.

Also, creditors don't just object out of the blue for no reason, they need to have cause (usually some type of fraud, but there is a whole list of things). Why do you think you are at risk for this creditor filing an objection to discharge (note, when a creditor files an objection, they are only objecting to the discharge of "their" debt, creditors typically don't have standing to object to your discharge as a whole).

[Boscoe]

If there was 2 loans applied for at the same time but the loans closed a month apart, wouldn't the second one say "had we known about the first loan, i.e. that you owned another property and did not include it on our application, then we may not have approved the loan".

That would be grounds for objecting, would it not? Or would they need to have actual knowledge of it to suspect something? In other words, if the first loan was paid off and not part of the bk, then they would not know about it, right?